Marketing beef quality offers profitability

DENVER – The profitability of marketing beef quality throughout the supply chain was the theme of a recent symposium put on by the Agriculture and Applied Economics Association meeting in Denver

Ted Schroeder, Kansas State University livestock marketing economist, moderated the event, “Vertical Coordination in the Evolving High Quality Beef Market.”

“This is a market segment with true momentum behind it,” Mr. Schroeder said. “If the consumer is being responsive to this high-quality product – and we’ve good evidence that is the case – then we have to start addressing issues with respect to targeting and coordinating the entire beef chain toward producing for that market.”

Proof that a sharper focus on beef quality can lead to growth and profit was presented by panelists. Mark McCully, Certified Angus Beef LLC assistant vice president for supply development, mapped out the demand for high-quality product as a growing segment. Consumers prefer their beef branded – that shows in the 112% increase in the number of U.S.D.A.-certified branded programs since 2001, Mr. McCully said. More than 55% of that increase was in brands that target premium Choice and Prime, like the C.A.B. brand.

Such programs find success in the midst of a recession. C.A.B. product sales will increase by more than 100 million lbs. in 2010, Mr. McCully predicted. As of May 2010, the brand’s retail and grocery partners had increased sales by 23% over fiscal year 2009, while foodservice and international sales had each increased by 10%. This demand translates to dollar signs for high-quality cattle prices, but the Choice/Select spread has become a less robust indicator. After all the premium brand boxes are filled, what’s left in today’s Choice box is less worthy of a much higher price than Select, Mr. McCully explained.

Despite erratic Choice/Select spreads since 2002 averaging $7.97 per hundredweight (cwt.), the market spread between C.A.B. and Choice has maintained more stability at $7.05/cwt. The Prime/Choice spread has averaged $23.48 over those years, and the Prime grid premium averaged $13.81/cwt. over the past three years.

“In today’s marketplace, the Choice box is so diluted that premium Choice and Prime will have to become the new benchmarks for ‘high quality,’ ” Mr. McCully said.

This profitability also trickles down to the profitability of feedlot operations, said John Lawrence, Iowa State University economist. Mr. Lawrence presented research findings from his team’s recent white paper, “Assessing the cost of beef quality: revisited.” Even with higher corn and cattle prices, marbling remains the most important performance and carcass trait affecting feedlot profitability, the I.S.U. team concluded.